A Japanese brokerage emphasised that the upcoming Union budget will be crucial for monitoring the new government’s economic vision and its handling of the political landscape. They also projected muted returns on the equities market in the second half of the year and maintained their year-end Nifty target at 24,860 points, indicating a modest increase of approximately 3 per cent from current levels.
As the government has pledged to bring the fiscal deficit down to 4.6 per cent by FY26, Aurodeep Nandi, the India economist at Nomura, told that another important topic to watch is the fiscal glide path. Nandi further emphasised that gaining an understanding of the incoming government’s economic agenda will be a crucial area to monitor, citing the 100-day plans of the government that were created by several ministries prior to the elections.
He added that following the election defeat, people will be closely observing the political theme of the incoming government’s budget, which is depending on coalition partners. Nandi stated that particular attention will be paid to how the next administration handles the demands from partners Janata Dal and TDP, which are based in Bihar and Andhra Pradesh, respectively.
Nandi further added that the demands being made by the allies could result in increased borrowing, direct handouts to citizens and local infrastructure spending. Concerns over increased social sector spending are becoming more and more prevalent. He emphasised that there is no fiscal risk associated with this, citing Finance Minister Nirmala Sitharaman’s recent comment that saturation levels had been achieved.
He said the government has over-delivered by reducing the fiscal deficit to 5.6 per cent in FY24 as against the budgeted 5.8 per cent, and also has the comfort of the record Rs 2.1 lakh crore of dividend from the RBI. The final budget can also opt for reducing the fiscal deficit marginally to 5 per cent from the interim budget target of 5.1 per cent, he said.
Nandi mentioned recent reports indicating a review of income taxes and stated that the government would possibly consider boosting economic consumption. He also pointed out that the way the government handles the manufacturing theme will be closely observed, adding that this may involve raising expenditures and extending the production-linked incentive programme to electronic components.
On the equity markets front, the brokerage’s head of equity research Saion Mukherjee said narratives are driving the market at present and most investors are not too bothered by the concerns on valuations. The current rally is completely fuelled by domestic money, and the foreign investors are on the sidelines, he said, adding that higher IPO activity in the second half of the year can help.
Higher IPO activity will reduce the valuations, he said, explaining that at present, a higher quantum of money is chasing a limited set of options and as the options increase, it will go to other scrips and help get some sanity. The foreign investors are chasing newer themes like artificial intelligence and the surge in Japanese markets, it said.
Mukherjee said the brokerage is overweight on financial stocks, capital goods and power, and underweight on auto and consumer discretionary sectors.
(with inputs from PTI)
